Where are the most lucrative real estate investments to be found in Switzerland? What kinds of property? How does the Swiss market differ from Germany?
PwC’s first Real Estate Investor Survey conducted by experts in Switzerland and Germany comes up with a number of key findings:
- Overall, all-risk yields (ARYs) in Switzerland are lower on residential property than on office space.
- Both residential and office properties tend to yield more in smaller Swiss cities than in Zurich and Geneva, and even more in outlying regions.
- The differential between the Big Two (Zurich and Geneva) and the other cities is even greater for high street retail property.
- Over the next twelve months most investors believe residential rent growth will stagnate, and anticipate negative growth in office rents in most cities and all outlying regions. They also predict negative growth for high street retail rents in all cities bar Lucerne.
- Residential assets are very popular in Switzerland but only a niche in Germany, where investors favour the logistics market.
- PropTech – technology start-ups for real estate – are an exciting prospect, but given the uncertainty it’s too early to invest
New, comprehensive study on Swiss real estate
What are all-risk yields (ARYs) for real estate investments in Swiss cities and regions? And how much higher are they in the German market? PwC’s Real Estate Investor Survey answers these questions for the first time with a comprehensive study based on interviews with leading Swiss institutional investors. In response to the growing interest in investments abroad, especially in Germany, we at PwC Switzerland teamed up with our colleagues in Germany, who had already published this semiannual study six times.
The study’s main focus is the development of interest rates and yields on real estate investments. In this light we asked our interviewees about the ARYs at which they are willing to invest in Switzerland’s Top 9 cities and eight regions. We also polled their views on the development of interest rates, letting parameters, growth perspectives and the methodology for calculating net operating income (NOI).
While the section of the report on the Swiss market comprises data on residential, office and retail real estate, the section on Germany focuses on office, retail and logistics. This mirrors the fact that while residential assets are highly popular among Swiss investors, they remain a niche in the German market. Instead, the logistics market is of great importance in Germany.
The findings for Switzerland in detail:
For residential properties, the city of Zurich shows the lowest yields among Swiss cities. The median ARY for core properties in Switzerland’s largest city is 2.5%, and investors will also accept significantly lower yields in individual cases. The average ARY for all Swiss residential properties is 2.9%, only slightly less than residential property in Geneva (3.0%), Bern (3.2%) and Basel (3.2%). It’s not just the city of Zurich that exhibits the lowest ARYs: the region of Zurich (excluding the city) averages an ARY of 3.3%, followed by the Lake Geneva Region (3.4%) and Northwestern Switzerland (3.5%). There is a consensus among most investors that residential rent growth will be stagnant over the next twelve months.
Zurich and Geneva again top the bunch for office real estate, with the lowest ARYs for core (2.5% each) and average office properties (3.3% each). At the other end of the spectrum, Lugano (3.7%) and St. Gallen (4.0%) exhibit the highest average ARYs. As for the regions, Zurich (average 4.2%) and Central Switzerland (average 4.4%) have the lowest yields on office property. Strikingly, the spread between the regions and the Top 9 cities they surround is significantly larger than for residential property. Office rent growth is expected to be negative for all regions, as well as for the cities of Zurich, Geneva, St. Gallen and Lugano.
Core high street retail properties in Zurich and Geneva yield 2.5% ARY, similar to the figure for office use. Switzerland’s two largest centres thus come in well below the remaining Top 9 cities. The regional ranking for retail property is slightly different than for residential and office use, with the Lake Geneva Region and Central Switzerland (average ARY of 4.3% each) moving past Zurich (average 4.4%). Rent growth is expected to be negative for all geographies, except the city of Lucerne.
Special focus: PropTech
This report features a special spotlight topic, PropTech. PropTech refers to start-ups in the real estate sector developing technology for application in areas from brokerage and management, financing and due diligence to development. Despite the rapidly growing number of new businesses, the study finds that there’s still too much uncertainty for investors to make a move. We assume that reservations will soon be eliminated once more use cases for PropTech become available, allowing market participants to achieve sizeable efficiency gains.
Check out the full PwC Real Estate Investor Survey here and feel free to call us if you’d like to discuss matters in more detail.